Residential versus non-residential construction: which market offers builders a brighter future?

According to the latest figures from Stats NZ, building consents were issued for 3058 new homes in July 2023, down 25% from July 2022 and more than 5% from June this year. On an annual basis, 43487 new homes were consented in the year ended July 2023, down 14% from a year earlier. In the year ended July 2023, there were 8.4 new homes per thousand households, compared with 9.9 a year earlier.

 

Stats NZ construction and property statistics manager Michael Heslop said, The number of new homes consented has continued to decline since peaking in early 2022. Every month so far in 2023 has recorded fewer new homes consented than the corresponding months in 2022 and 2021.

 

Monthly comparison of new homes consented from January 2020 to July 2023 (Source: Stats NZ)

 

By housing type, 1183 standalone houses were consented in July 2023, down 32% from July 2022. Meanwhile, 1875 multi-unit homes, including townhouses, apartments and retirement village units, were consented, down 21% from the same month a year earlier. In the year ended July 2023, 17951 standalone houses were consented, down 23% from a year earlier, alongside 25,536 multi-unit homes, down 6.4%.

 

Specifically, in the year ended July 2023, building consents were issued for 18451 multi-unit homes, down 11% year on year, including:

4070 apartments (up 5.4% year on year);

3015 retirement village units (up 14% year on year).

 

Stats NZ stated that, in the year ended July 2023, every region except Gisborne, Nelson and Marlborough recorded fewer new homes consented than a year earlier.

 

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In the year ended July 2023, the four regions with the most new homes consented were:

Auckland: 18743 homes (down 14% year on year);

Canterbury: 7650 homes (down 11% year on year);

Waikato: 4121 homes (down 18% year on year);

Wellington: 3252 homes (down 17% year on year).

 

The latest building work volume figures released on Wednesday show that residential building activity fell for a third consecutive quarter in the second quarter of 2023, while non-residential building activity rose for a third consecutive quarter. The total value of building projects in the second quarter of 2023 was NZ$8,943,000,000, down just 0.1% from the first quarter of 2023, closely matching economists’ forecasts.

 

For residential construction, the latest recorded fall of 2% followed a 4.3% decline in the first quarter and a 1.4% decline in the fourth quarter of 2022. The total value of residential work fell from NZ$6,169,000,000 in the fourth quarter of 2022 to NZ$5,786,000,000 in the second quarter of 2023. This contrasts sharply with growth in non-residential building activity, which rose 3.7% last quarter after increases of 2.6% and 1.95 in the first and fourth quarters of 2022, respectively. In the year ended July 2023, the total value of non-residential building consents was NZ$10,000,000,000, up 13% from a year earlier. Over the past 12 months, residential construction costs rose 7.8% and non-residential construction costs rose 6.8%.

 

So, with the residential market shrinking, will builders worried about too many firms chasing too little work consider entering the non-residential market? Share your views.